The short answer is that most of what you spend to run your business is deductible. The longer answer is the part that matters, because most is not all, and getting the boundary right is what keeps your return clean. A deduction lowers your taxable income, so every legitimate one you miss is money left on the table, and every one you overclaim is a problem waiting to happen.
The three tests every expense has to pass
There are 3 tests. First, the expense has to be for the business, not a private cost. Second, if something is part business and part private, like your phone or your car, you only claim the business share. Third, you need a record that proves it, an invoice or receipt, kept for 5 years. Pass all three and you can claim it. Fail any one and you cannot.
In practice that still covers a lot: rent for your premises, phone and internet, software subscriptions, insurance, accounting fees, bank charges, advertising, wages and super for staff, contractor payments, stock, and the interest on a business loan. If the cost genuinely helped you earn your income, it is usually deductible.
Apportioning is where honest mistakes happen
If you use your car 60 percent for work and 40 percent for private trips, you claim 60 percent, and you need something, usually a logbook, to back that number up. It is the same with a home based business, or a phone that rings for both work and family. Claiming the whole thing when part of it is private is one of the fastest ways to draw attention to your return.
Claim it now, or claim it over time
Here is the split that trips people up. Day to day running costs are deductible in full in the year you pay them. But when you buy something that lasts, equipment, tools, machinery, a work vehicle, that is a capital asset, and you generally claim it gradually over its useful life through depreciation, not all at once.
Small businesses have often been able to shortcut that with the instant asset write-off, claiming the full cost of a low value asset straight away. Be careful with the threshold, because it is in flux. For the 2025-26 year it was 20,000 dollars per asset. From 1 July 2026 the legislated threshold drops back to 1,000 dollars. The May 2026 Federal Budget announced a permanent 20,000 dollar write-off from that date, but that announcement is not yet law. Until it passes, plan on the 1,000 dollar figure and check the current position before you rely on it.
Keep GST out of the deduction
If you are registered for GST, keep the two things separate. You claim the GST portion of a purchase as a credit on your BAS, and you claim the deduction on the GST-exclusive amount. Counting the GST in both places is double dipping. If you are not registered, the GST is simply part of the cost and goes into your deduction.
Three tests decide whether you can claim. The operating-versus-capital fork decides whether you claim it now or over time.
What you simply cannot claim
A few things are out no matter how the receipt is labelled. Private living costs. Most entertainment. Fines and penalties. Anything you have already been reimbursed for. And the GST you have already claimed as a credit. None of these belong in your deductions.
All of this rests on records, which is why reconciling your accounts through the year is not just tidy bookkeeping. When every transaction is coded to the right account as it happens, your deductions are already sorted at tax time instead of being rebuilt from a shoebox in July. If you are unsure which side of the line a particular cost sits on, Tax Assistant can help you sort it. The habit that pays off is simple: keep the receipt, note the business share, and record it as you go.
The technical detail
General rule. Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing incurred in gaining or producing assessable income, or in carrying on a business for that purpose, to the extent it is not private, capital or otherwise excluded.
The three tests. The expense must be for the business; where use is mixed, only the business portion is claimed; and records substantiating the expense must be kept.
Capital versus revenue. Capital assets are deducted over time through decline in value (Division 40 ITAA 1997) or the simplified depreciation rules for small business, rather than immediately.
Instant asset write-off. The threshold was 20,000 dollars per asset for 2025-26 (aggregated turnover under 10 million dollars, simplified depreciation), legislated by the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025. From 1 July 2026 the standing legislated threshold is 1,000 dollars. The 2026-27 Budget measure to make 20,000 dollars permanent (Treasury Laws Amendment (Tax Reform No. 2) Bill 2026) is announced but not yet law. Assets at or above the threshold enter the small business pool (15 percent in the first year, 30 percent thereafter).
GST. Registered businesses claim input tax credits through the BAS and deduct the GST-exclusive amount (A New Tax System (Goods and Services Tax) Act 1999). Non-deductible items include private expenses, most entertainment, fines and penalties, and reimbursed amounts.
Records. Substantiating records must generally be kept for 5 years under section 262A of the Income Tax Assessment Act 1936.
Current as at July 2026. General information only, not personal tax advice.
